Flug: Too early to tell if home prices are falling

Bank of Israel Governor tells contractors: We'd like to see house prices fall gradually.

Governor of the Bank of Israel Karnit Flug told a gathering of construction sector managers, "After a decade of price rises, there has been a leveling off in recent months, although it is too early to tell whether the upward trend has halted." Flug added, "There is broad agreement that sharp changes in housing prices should be avoided. We'd like to see a gradual fall in housing prices."

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Flug was speaking at a council of construction sector managers formed early this year at the initiative of Israel Builders Association president Ron Brik. The council includes senior managers from all parts of the sector. She told them, "We see the differences between the various districts. Prices rose more in the Tel Aviv and central districts, and the same is true for rents."

According to Flug, the construction industry's challenge is long-term planning. She mentioned the demographic effect on construction, saying, "This is a force for changes in housing prices that is pushing up demand in the long term. There was a baby boom in Israel in the 1970s that created the current situation, in which the 30-44 age bracket, the ages at which people usually buy housing, constitutes a larger proportion of the population. These and other demographic changes were predictable, but were apparently not taken into account in the planning processes.

"In retrospect, a prominent correlation can be seen between the proportion of this population age bracket in different districts and the increase in the prices of 3.5-4-room apartments. It is no accident, for example, that in the Tel Aviv district, the price increases have been particularly steep over the years, given the relatively steep rise in the proportion of the young population, combined with the inelasticity of supply," she explained.

Flug went on to say, "According to the Central Bureau of Statistics' demographic forecast, the population in Israel will double by 2059. This figure should underline advance planning. The chief need is to increase the planning inventory. Processes in the construction industry are lengthy, and if you want to be ready for the next wave, it is clear that the main task is creating a large available supply that can be released quickly."